01—Abstract
Summary
Summary of the 10-K filed February 13, 2019. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported total assets of $243.04 billiona and assets under management (AUM) of $626.8 billion as of December 31, 2018, and described itself as a leader in global investment management offering retirement, asset management and insurance products.
Net income attributable to Principal Financial Group, Inc. was $1,546.5 millionb in 2018, down from $2,310.4 million in 2017, primarily due to a $568.3 million U.S. tax reform net benefit and a $410.8 million after-tax realized capital gain from real estate transactions recognized in 2017. Diluted earnings per share were $5.36 in 2018 versus $7.88 in 2017. Total revenues rose to $14,237.2 million from $14,093.2 million, while total stockholders' equity declined to $11,456.0 million from $12,921.9 million, largely reflecting a $1,835.7 million other comprehensive loss.
AUM decreased from $668.6 billion at year-end 2017 to $626.8 billionc, driven by negative net cash flow and market performance in the Retirement and Income Solutions and Principal Global Investors segments, as well as the realignment of a real estate team and the exit from the actively managed currency market. Pre-tax operating earnings were $553.2 million for Principal Global Investors, which benefited from a $253.1 million accelerated performance fee, while Retirement and Income Solutions earned $880.6 million. Cash returned to stockholders totaled $1,270.2 million in 2018, including $598.6 million in dividends and $671.6 million in share repurchases, and dividends declared per share rose to $2.10 from $1.87.
The filing also highlights ongoing risks, including interest rate sensitivity, equity market exposure through fee-based revenues, commercial mortgage loan concentration (21% in California), and dependence on the insurance subsidiary Principal Life for dividends, which are constrained by Iowa law. Unrealized losses on available-for-sale fixed maturities were $1,229.7 milliond at year-end 2018, and PFG's senior debt was rated A- by S&P and Fitch, with Principal Life's insurer financial strength rated A+ by A.M. Best and S&P.
02—Key points
Key Highlights
- Total assets of $243,036.1 million and total stockholders' equity of $11,456.0 million at December 31, 2018, down from $12,921.9 million a year earlier.
- Net income attributable to Principal Financial Group, Inc. of $1,546.5 million in 2018 versus $2,310.4 million in 2017; diluted EPS of $5.36 versus $7.88.
- AUM of $626.8 billion at year-end 2018, down from $668.6 billion, reflecting negative net cash flow and market performance.
- 2017 results included a $568.3 million U.S. tax reform net benefit and a $410.8 million after-tax realized capital gain from real estate transactions, which did not recur in 2018.
- Principal Global Investors pre-tax operating earnings rose to $553.2 million, aided by a $253.1 million accelerated performance fee from a real estate team realignment.
- Returned $1,270.2 million to stockholders in 2018 through $598.6 million of dividends and $671.6 million of share repurchases; dividends declared per share increased to $2.10 from $1.87.
- Principal Life's insurer financial strength ratings were A+ (A.M. Best and S&P), AA- (Fitch) and A1 (Moody's), all with stable outlooks.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 13, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $14.24B$14.09B | +1.0% |
| Net Income | $1.55B$2.32B | −33.5% |
| EPS (Basic) | $5.41$8.00 | −32.4% |
| EPS (Diluted) | $5.36$7.88 | −32.0% |
| Shares Outstanding (Basic) | 285.80M288.90M | −1.1% |
| Shares Outstanding (Diluted) | 288.80M293.10M | −1.5% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2018 compared with 2017?
The filing states that net income attributable to Principal Financial Group, Inc. decreased primarily due to a $568.3 million U.S. tax reform net benefit and a $410.8 million after-tax net realized capital gain from real estate transactions recognized in 2017. These decreases were partially offset by an $86.4 million decrease in losses on derivatives not designated as hedging instruments.
How did assets under management change during 2018?
Total AUM decreased to $626.8 billion from $668.6 billion. The filing attributes the decline to negative net cash flow and negative market returns in the Retirement and Income Solutions and Principal Global Investors segments, the realignment of a real estate investment team, and the decision to exit the actively managed currency market in 2018.
What constrains PFG's ability to pay dividends to its stockholders?
PFG is an insurance holding company whose ability to pay dividends depends on dividends from Principal Life, which are limited by Iowa insurance law. The filing states that Principal Life could pay approximately $1,085.7 million in ordinary stockholder dividends in 2019 without prior regulatory approval, though some dividends paid early in 2019 may be treated as extraordinary and require approval.
What are the main investment risks disclosed in the filing?
The filing cites interest rate risk from a sustained low-rate environment or rising rates, equity market declines that reduce fee-based revenues, and credit risk. Notable exposures include $57.1 billion of U.S. fixed maturities, commercial mortgage loans of $14.0 billion (21% in California), and $1,229.7 million of gross unrealized losses on available-for-sale fixed maturities as of December 31, 2018.
How strong are PFG's credit and financial strength ratings?
The filing reports that A.M. Best rates Principal Life and PNLIC A+ (Superior) with a stable outlook, Fitch rates them AA- (Very Strong), S&P rates them A+ (Strong), and Moody's rates them A1 (Good), all with stable outlooks. PFG's senior unsecured debt is rated a- by A.M. Best, A- by Fitch and S&P, and Baa2 by Moody's (Baa1 on its senior debt issuance).
06—Continue